Understanding your profit margin vs. your markup is one of the foundations of Building Better Profits with Exciting Windows!
In fact, we consider it so vital to the success of your business, that it’s one of the first things we discuss with you during your initial meetings with our partners. When you join Exciting Windows! Steve Bursten is going to walk you through all your numbers related to your sales. Then Vin will walk you through all the numbers related to your operating expenses.
Then the magic happens.
Vin will help you understand the relationship between your operational expenses and your sales numbers and how your mark up and your gross margins play an important role in the financial health of your business.
You might be surprised by how many business owners don’t understand the relationship between these numbers… and if you are one of them, please don’t beat yourself up. But, if you are one of them, you need to get up to speed now.
Let’s talk about the math and formulas that go into determining margins and markup, and more importantly, why it should matter to you.
What is profit?
So we understand what profit is in general, right? We all associate profit with how much money we’re making, that’s clear. But we need to understand the difference between gross profit and net profit.
Gross profit is the amount of money you are left with after deducting the cost of goods sold from revenue.
Net profit reflects the amount of money you are left with after having paid all your allowable business expenses.
We need to calculate gross profit to arrive at net profit. Our net profit is what’s considered our “bottom line”. You won’t have a clear grasp on the profitability of your business if you aren’t taking into account your operating expenses and subtracting them from your gross profit.
What is a multiplier?
The multiplier is the coefficient by which the cost is increased to arrive at the retail price.
Use caution when determining what your multiplier should be. If you aren’t using the correct figure, your retail price will be far below what is sustainable for a profitable business. For window treatments, you should aim for a 2.5-3x multiplier. You cannot run a profitable business on anything less, because it won’t support your net profit which takes into account your operating expenses.
What is markup?
Markup is the difference between selling price and cost. To determine the dollar amount of your markup, calculate your selling price minus the cost. To calculate the markup percentage, the formula is (selling price – cost) / cost.
This is how much the cost is increased to arrive at your selling price.
Why do profit margins matter?
Profit margin is selling price, minus cost, divided by selling price. Think of margin as gross profit compared to selling price. That’s why we divide it by selling price. You should aim for a 55-60% gross profit margin to run a financially healthy business.
The bottom line of this is that we care about these numbers because they are the drivers to success. They show us how financially free we are, how financially independent we are, how financially sustainable we are in terms of our business. Profit margins are how we build a better business with better profits. And ultimately, our business translates to our personal lives. That’s why we should care. It improves the quality of our lives—at least on a financial level.
If you want a deeper understanding of profit margins and markups, specifically as they pertain to window treatments, be sure to check out episode #748, part of the WTF Series (Window Treatment Friday) on A Well-Designed Business podcast.
And for weekly discussions and lessons like this, be sure to listen to Vita Vygovska on Vita’s Tips in 10 series on Window Treatments For Profit podcast, which is proudly sponsored by Exciting Windows! Vita’s episodes are 10 minutes of jam packed, actionable advice to help you Build a Better Business.
Are you ready to build a better business with better profit margins?
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Exciting Windows! Membership provides the support and insight of not just the ownership team and the Exciting Windows! Members, but industry experts and the data that matters to you. Our partners work with you to determine what you need to take your business to the next level, and we provide you with the guidance, the steps and inspiration to get there.
Whether you are just beginning your entrepreneurial journey or you are a seasoned business owner—you will find a wealth of knowledge on how to create efficiencies and optimize your processes and systems.
Our community and collaborative support system is our secret sauce – we all run window treatment companies too, so we know your challenges and needs are not like any other business.
Let’s schedule a time to talk about how we can help you Build A Better Business.
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Find your people. Reach your goals. Grow your business.
Our members are the top-performing window treatment professionals in the industry.
Join us and grow!
- Want to learn from those who have done it before you?
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- Learn methods that will save thousands of dollars and hours of lost time?
- Hit that next goal you’ve had in mind for months…or even years?
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